REQUIREMENTS OF RAW MATERIALS FOR STEEL INDUSTRY ─ REFLECTIONS ON MMDR BILL 2011

1. REQUIREMENTS OF RAW MATERIALS FOR STEEL INDUSTRY ─ REFLECTIONS ON MMDR BILL 2011 R.K. SHARMA Secretary General Federation of Indian Mineral Industries

2. I ─ IRON ORE The 12th Five Year Plan has estimated the requirements of iron ore based on projected steel production as under : Table-1 Estimation of Demand for Iron Ore during 12th Five Year Plan Period (Qty. : million tonnes) Note:The estimates are based on the technology mix in steel production, standard Input-output norms and transit and handling losses of raw materials in the process. Source: Estimated on the basis of projections of crude steel and pig iron production during 12th Plan. I am not able to understand how the estimation of iron ore requirements has been made. The requirement will increase from 115 million tonnes in 2011-12 to 206.2 million tonnes in 2016-17. The note under the above table extracted from 12th Five Year Plan document emphasizes that “the estimates are based on the assumed technology mix in steel production, standard input-output norms and transit and handling losses of raw materials in the process”. 30-32% of the crude steel production is contributed by induction furnace (IF) units which do not require iron ore. Similarly, the requirements of sponge iron units, which basically use lumps, have not been indicated.

3. As against the above projections, the production of iron ore over last five years has been as under : Table-2 Production of Iron ore (Qty. : million tonnes) Note: Figures in parenthesis show percentage in total Source: Indian Bureau of Mines, Nagpur

4. The above table brings out clearly the phenomenon occurring world-wide that as we go deep down for mining, the generation of fines is more. In India also, the production of lumps is gradually going down and that of fines going up. Big boulders and lumps are further crushed in the size of 6-18 mm for sponge iron plants and 10-40 mm for steel plants. On an all-India basis, roughly 70-72% becomes fines and the rest 28-30% as lumps. For convenience sake, I have assumed the same proportion of lumps and fines (30:70) for all the five years as will be seen in Section B of the Table-2, although the proportion of fines might be more. • This therefore emphasizes the need to encourage technologies that predominantly or wholly use fines, either as pellets or sinter feed. Since pelletisation involves sizeable cost in the form of capital, energy and water (the last two being scarce), it would be more appropriate in my view, to use sinter-based blast furnaces for further steel making. Further, I am told while pelletisation improves metallization marginally (just around 1-2%), sintering on the other hand can significantly enhance the Fe content by about 5-8%. Except US, globally pellets are not used extensively : USA EU Japan South Korea China Sinter % 10 62 74 75 70 Pellet % 82 25 6 10 12

5. Fines-based technologies for steel will enable us to utilise fines produced in the country from the existing mines and minimize the necessity to export fines. Unless steps are taken right now in this direction, exports will have to continue to supply lumps to the domestic industry, basically sponge iron plants. Any attempt to reduce or stop export of fines will directly affect the production of iron ore and make availability of lumps difficult and costly. • Indian iron ore contains high alumina which requires more energy in blast furnace. The steel industry therefore consumes high Fe content to compensate for extra energy cost. The mechanical beneficiation is a costly proposition though TATAs are reported to have attempted it successfully. Would it therefore be not more prudent to import low alumina iron ore to blend with high alumina Indian iron ore?

6. The above discussion leads us to the following conclusions : • there would be no shortage of iron ore during the 12th Five Year Plan period. In fact the country already produces more iron ore than estimated the last year of 12th Plan. • there should be no allocation of captive mines so that the surplus capacity in the existing mines are fully utilized. • till the surplus production from the existing mines is fully utilized, there should be no curtailment / ban on the export of iron ore. • import low alumina iron ore to physically blend with high alumina Indian ore. • The concept of granting captive mines to steel or aluminium plants is a typically Indian phenomenon. This has deprived the country of world-class standalone resource mining companies which could have led to sustainable development of iron ore resources with attendant benefits such as development of infrastructure and socio-economic growth in areas where these could have developed. This has created distortion. While the companies which have captive mines have either become inefficient leading to almost stagnant steel production or have generated exorbitant profits leading to the purchase of sick steel companies abroad to provide jobs and investment in those countries. The steel companies who do not have captive mines clamour for shortage of iron ore where there is none and high prices. The whole policy of grant of captive leases therefore requires a re-look.

7. II ─ MANGANESE ORE The demand for manganese ore as against projected production during 12th Five Year Plan has been estimated as under: Table-3 Projected production and demand of Manganese Ore during 12th Five Year Plan (Qty. : `000 tonnes) Source : 12th Five Year Plan document

8. As against this, the production, consumption and exports of manganese ore over the last five years are as under : Table-4 Production, consumption and exports of Manganese Ore (Qty. : `000 tonnes) Source: 1. Indian Bureau of Mines (IBM), Nagpur 2. MMTC, New Delhi • Indian manganese ore by and large has high phos content and therefore not very much required by steel / ferro-alloy plants. Many manganese producers , such as FACOR, have tried to set up beneficiation plants to reduce phos content but could not succeed. The best beneficiation at reasonable cost is to blend with low phos imported ore. In the past, manganese producers were pleading with Ministry of Steel to allow export of manganese not in demand in India. The Ministry of Steel, under pressure of ferro-alloys industry did not allow with the result, India became an unreliable supplier that despite ceilings of 7 lakhtonnes, the exports are tapering off. Neither the domestic industry picked up manganese ore produced in the country nor would it allow export on the plea that it was a scarce resource. The result was that due to domestic demand crunch and hardly any export outlet, a large number of manganese mines have closed down. On the other hand, imports are rising at phenomenal speed as can be seen from the following table:

9. Table-5 Import of Manganese Ore (Qty. : `000 tonnes) Source: MMTC, DGCIS, IBM • International trade is a two-way traffic: a country exports products which are either surplus or not required in the country and imports what it requires. India presents a spectacular phenomenon: you only supply manganese ore to domestic industry and if they don’t require, better close down. This is what happened somewhat in the case of mica with the result that synthetic substitute with better physical and chemical composition has taken over natural mica. Indian mica mines are closed and the resource is lost for all time to come. • In the same vein, to the annoyance of my ferro-alloy friends, may I ask through this forum why the Ministry of Steel is allowing the export of ferro-manganese, a scarce resource. I would also suggest that in order to revive the closed mines, the Government of India should clamp steep import duty so that domestic ferro-alloy industry is persuaded to use domestic material with imported low phos manganese ore.

10. III ─ CHROME ORE • The demand for chrome ore as against projected production during 12th Five Year Plan has been estimated as under : Table-6 Projected production and demand of Chrome Ore during 12th Five Year Plan (Qty. : `000 tonnes) Source: 12th Five Year Plan document • As against this, the production, consumption and exports of chrome ore over the last five years are as under :

11. Table-7 Production, consumption and exports of Chrome Ore (Qty. : `000 tonnes) Source: 1. Indian Bureau of Mines (IBM), Nagpur 2. MMTC, New Delhi • Chrome concentrate, beneficiated out of low grade chrome ore and not required in the country, is outside the purview of quantitative ceilings. Their exports over last five years have been as under : Table-8 Exports of Chrome Concentrate (Qty. : `000 tonnes) Source: MMTC, New Delhi

12. The exports of chrome ore have dwindled because of heavy exports duty of Rs. 3000/- per tonne which will be 30% ad volerum hereafter. On the one hand there is a heavy export duty on the exports, there is free imports of chrome ore into the country to the detriment of domestic industry : Table-9 Import of Chrome Ore (Qty. : `000 tonnes) Source: MMTC, DGCIS • It is surprising that whereas there is a restriction on the exports of chrome ore, there is no restriction on the exports of ferro-chrome. This goes counter to the argument of steel / ferro-alloy lobby which cries about the exports of scare chrome ore resources whereas they are themselves exporting chrome with fuel, a scarce resource, as additional element. In order that the country’s resources are properly utilized to the optimum level, there should be heavy import duty on the imports of chrome ore.

13. IV – REFLECTIONS ON MMDR BIL, 2011 • The MMDR Bill, 2011, replacing the earlier Mines and Minerals (Development and Regulation) Act, 1957 was tabled in Parliament on 12th December, 2011. The Bill has been referred to the Standing Committee on Coal & Steel. The proposed Bill is very retrograde and will thwart the development of mineral resources in the country. In fact, a vast amount of Indian capital which could have been invested in the country for development of mineral resources has been diverted to foreign countries for development of mineral resources in those countries. There will provide economic benefits to the communities residing in those countries. The mineral resources in India are mostly located in backward and tribal areas where naxalite activities are at its peak. If the conditions in India had been congenial for investment, this capital could have been employed domestically for better economic and social benefits to communities in these tribal and backward areas. • FIMI has submitted its views and suggestions to the Standing Committee for Coal & Steel. Some of the suggestions are as under :

14. In MMDR Bill 2011, the power to grant and extend concessions has been given to State governments even for those minerals which were so far in Part C of First Schedule of the MMDR Act 1957, namely, asbestos, bauxite, chrome ore, copper ore, gold, iron ore, lead, manganese ore, processing stones and zinc. It may be noted that, since most such concessions will now be auctioned, this will require `notifying’ such areas to invite competitive bids, deciding reserve price as well as expected price, preparing prospecting reports, feasibility reports, mine plans, seeking approvals from IBM for mine plan and MoEF (for forest lands) and landowners. We feel that most State Governments do not have the capacity to undertake all these activities and therefore will remain a non-starter. As the schedule minerals are very important from the perspective of national economy and require huge investments in exploration and development, the role of Central government is very significant. • the provisions relating to auction of exploration and mining concessions will discourage serious investors, particularly foreign investments from coming to the country’s mineral sector which was the primary objective behind Hoda Committee’s recommendations and NMP 2008’s policy commitments. Even in the countries like Russia & Kyrgyzstan which sometimes follow tender / auction route, prospecting / exploration licences are never auctioned. It may be noted that NMP 2008 does not talk about auctions at all.

15. the regulatory framework emerging out of the MMDR Bill 2011 is very complex and difficult, if not impossible, to implement particularly by the State Governments to whom most of the powers have been devolved under the proposed Bill; • all applications pending at the time of commencement of new Act will lapse, new applications for prospecting license have a moratorium of two years (+ 1 year extension), and no direct applications for mining leases will be entertained. A quick calculation indicates that no new mines will see the light of day for next 15-20 years if the Bill becomes Act as proposed, while the country’s economic growth demands more and more mined resources; • India’s mining sector is already the highest taxed in the world, additional provisions (like contribution to District Mineral Foundation, State/Central Cess, high license fee etc.) will make it unviable to do mining in India; • special Courts and very stiff punishments and penalties have been prescribed; while FIMI is all against illegal mining, we believe that adequate implementation and good governance are required rather than more laws to prevent illegal mining and • numerous new regulatory bodies are to be created as per the proposed Bill, viz., NMRA, SMRA, NMT, SMT, NMF, SMF, DMF, etc. some of which will duplicate the work of existing bodies like IBM. We feel this will create more confusion.

16. In view of the above, our broad suggestions and requests for the consideration of the Committee are ─ • Prior approval of Government of India for minerals in Schedule First in Part C of MMDR Act 1957 (now Part D in MMDR Bill 2011) should be retained; • auction system should be scrapped; • the contribution to DMF should be reduced to 26% of royalty paid during the previous financial year; State/Central Cess should not be levied at all; the NMRA/NMT/SMRA/SMTs should be funded out of Centre / State budgets as in the case of CERC/SERC/TRAI/IRDA & appellate authorities; • special courts for mines not required; penalties / punishments under existing MMDR Act 1957 are adequate, provided these are strictly enforced and • in view of the growing importance in domestic market and export trade, graniteshould be declared asmajormineral.

17. Thank you